Commentary on how China and the world are adapting to each other -- or not.

June 08, 2011

WTO Victory Is a Breeze

Yesterday the US Trade Representative announced that China has cancelled a controversial subsidy program for its wind energy sector. The US in December initiated a WTO case against China charging that this program, which provided a few hundred million RMB to promote the domestic sector, violated China’s commitments to the WTO.

How big is this victory? On a scale of 1 to 10, I’d say a 4. This was a small program in the grand scheme of things and wouldn’t have blown away any multinational company on its own – at least so tells me a lobbyist for the wind energy sector. Also, the case itself was a bone thrown to the American steelworkers union, which in the Fall submitted a several thousand page petition to USTR claiming massive Chinese violations across a wide range of areas. Out of those several thousands of pages thrown at the wall, only one small program “stuck.” It is still possible that other elements will eventually make their way into a WTO case, such as export controls on rare earths, but this is a minor case on its own.

I give USTR a 4, and not lower, because although this program is relatively insignificant, the case further turns the spotlight toward subsidies writ large across China’s economy. There are many subsidies, explicit and implicit, in most sectors. Many of them may be economically justifiable, but in the era of the WTO, it’s the legal rationale that gets most of the attention.

Historically, USTR has attempted to only launch cases that are clear winners on the evidence, have industry support, and are highly valuable. On its own, this case is not worth a lot of money, but perhaps as it is tied to a broader argument about subsidies, it will in hindsight be seen as more substantial. Time will tell which way the wind blows.